Shares in consumer brand platform THG (THG) revisited their December lows, falling 10.5% to 166p, after the firm revealed its adjusted core earnings margin for last year would miss forecasts.

After a poorly-received investor day last October, the shares have lost more than 60% following disappointing third and fourth quarter updates.

MORE DISAPPOINTMENT

Despite posting a strong advance in beauty and nutrition sales for the full year, as well as a sharp increase in revenues for its Ingenuity business, the group said its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin would be in the range of 7.4% to 7.7% compared with market forecasts of around 7.9%.

The firm cited the strength of sterling for a 0.9% margin headwind, suggesting underlying profitability was actually above market forecasts.

For the current year the company sees ‘more challenging’ conditions in the first half due to lockdown-driven gains last year and is therefore targeting top line growth of between 22% and 25% on a constant currency basis against 38% last year.

EBITDA margins are seen improving steadily due to prior investments in automation but the firm still faces significant cost inflation in nutrition, principally sweet whey prices, and supply chain issues which are unwinding more slowly than hoped.

BROKERS STILL BULLISH

Despite the latest margin disappointment, some brokers are staying bullish on The Hut Group with Liberum cutting its earnings estimates and its target price but maintaining that ‘the fundamentals in place at the time of the IPO (initial public offering) have not changed’.

Describing the share price decline as 'excessive', Liberum is keeping its buy recommendation and suggesting a 700p target, more than four times the current share price.

In a similar vein, analysts at Davy Research cut their EBITDA forecasts for last year and this year but have kept their outperform recommendation, flagging the growth in repeat customers across beauty and nutrition and the increase in revenues for the Ingenuity platform as reasons to own the stock.

According to press reports, THG recently submitted documents to the Financial Conduct Authority which it believes show the fall in the company’s share price is the result of a coordinated campaign by short-sellers and stockbrokers.

However, core shareholder BlackRock voted with its feet at the start of November by offloading 5% of its 9.54% stake when the price was still around 200p per share.

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Issue Date: 18 Jan 2022